The Entry Of Contract Manufacturer(CM)with Vertical Differential Product

In this paper,we consider a supply chain consists of an original equipment manufactur-er(OEM)who outsources its production process to a contact manufacturer(CM).The main issues we address are,should the CM enter the market with vertical differential product where the OEM sells products to.We develop two game theoretical models when CM entry the market or not,and then make comparative analysis of the equilib-rium outcomes.We assume that there are two heterogeneous types of consumers in the market,the Royalist-type and the Switcher-type.A characterization of the market size and the maximal willing-to-pay(WTP)of S-type consumer on CM's optimal de-cisions and the effect to OEM reveals that:i)the CM will definitely entry the market when the OEM target only the R-type segment consumers,and the CM will not choose the entry strategy when the OEM target both two types of consumers and if the market size and the maximal WTP of S-type consumer meet some particular conditions,ii)it is profitable for the CM to entry the market in most cases which could also bring'win-win' situation to both firms.From the perspective of the OEM,it could target different segments of consumers depending on the decision of CM's entry.